DBRS Morningstar Assigns AA (low) (sf) Rating to Marzio Finance S.r.l. - Series 7-2019

DBRS Ratings GmbH (DBRS Morningstar) assigned a rating of AA (low) (sf) to the EUR 352,200,000 Class A Notes issued by Marzio Finance S.r.l. (the Issuer) under Series 7-2019, in the context of a securitisation programme (the Programme).

The rating addresses the timely payment of interest and ultimate repayment of principal on or before the final maturity date falling in June 2044. The Issuer, under its Series 7-2019, also issued EUR 41,303,000 Series 7-2019 Class J Asset-Backed Notes due in June 2044, which DBRS Morningstar did not rate.

In the context of the Programme, which was established in August 2017 and amended in November 2018, DBRS Morningstar assigned a rating of A (high) (sf) to the Class A Series 1-2017 notes on 28 September 2017. This rating was upgraded to AA (low) (sf) on 28 September 2018. DBRS Morningstar also assigned a rating of AA (low) (sf) to the Class A Series 2-2018 notes on 29 January 2018, which was confirmed following the annual review of the transaction on 29 January 2019. On 24 May 2018, DBRS Morningstar assigned a rating of AA (low) (sf) to the Class A Series 3-2018 notes, which was confirmed on 23 May 2019. On 21 November 2018, DBRS Morningstar assigned ratings of AA (sf) and A (high) (sf) to the Class A and Class B Series 4-2018 notes, respectively. On 5 April 2019, DBRS Morningstar assigned a rating of AA (low) (sf) to the Class A Series 5-2019 notes. On 31 July 2019, DBRS Morningstar assigned a rating of AA (low) (sf) to the Class A Series 6-2019 notes.

Further series may be issued under the Programme by the Issuer, but each series and the portfolio backing it are segregated from the others. As such, although DBRS Morningstar may assign ratings to notes from the other series, the ratings may be different and different rating actions may be taken on different series. In fact, although all series rely on the same template documents, each series is regulated by a specific set of documents and is backed by its own segregated estate of the Programme as typically permitted under Italian securitisation law; however, most of the counterparties and some of the series features are identical since they are based on the same Programme template documents.

The notes issued under Series 7-2019 are backed by Italian consumer loan contracts related to salary and pension assignment loans as well as payment delegation loans granted by IBL Istituto Bancario del Lavoro S.p.A. (IBL) to Italian employees and pensioners. The proceeds of subscription from the Series 7-2019 notes financed the purchase of the portfolio backing the Series 7-2019 notes. The Series 7-2019 receivables are segregated from Series 1-2017, Series 2-2018, Series 3-2018, Series 4-2018, Series 5-2019, Series 6-2019 and the other series’ receivables that may be assigned to back the issuance of further series. IBL services the Series 7-2019 receivables and the other receivables that may be assigned in the context of the Programme, with IBL Servicing S.p.A., a company fully owned by IBL, appointed as master servicer. Zenith Service S.p.A (Zenith) is the backup servicer for this transaction.

As of 31 August 2019, the Series 7-2019 portfolio consisted of 20,379 loan contracts with a total balance of approximately EUR 383 million. The portfolio is composed of salary assignment (45.4% of the outstanding balance), pension assignment (38.6%) and payment delegation (15.9%) loans. It is mainly distributed in the southern and central provinces of Italy, with the highest concentrations in the regions of Lazio (20.0% of the outstanding balance), Sicily (13.2%) and Lombardy (12.8%).

The rating is based on DBRS Morningstar’s review of the following analytical considerations:

-- The available credit enhancement in the form of subordination, reserves and excess spread;
-- The ability of the transaction’s structure to withstand stressed cash flow assumptions in order to pay interest on a timely basis and ultimately repay the principal of the Class A Notes on or before the legal maturity date according to the terms of the transaction documents;
-- IBL’s financial situation and its capabilities with respect to originations, underwriting and servicing;
-- The role of Zenith as the appointed backup servicer and its capabilities in that respect;
-- The credit quality of the collateral as deduced from the available information and the ability of the servicer to perform collection activities on the collateral;
-- The sovereign rating of the Republic of Italy, which DBRS Morningstar currently rates at BBB (high); and
-- The legal structure and legal opinions that address the assignment of the assets to the Issuer and the other features, that, more generally, are consistent with DBRS Morningstar’s “Legal Criteria for European Structured Finance Transactions” methodology.

The transaction structure was analysed with Intex DealMaker.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Rating European Consumer and Commercial Asset-Backed Securitisations”.

DBRS Morningstar has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

Other methodologies referenced in this transaction are listed at the end of this press release.

These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrs.com/research/350410/global-methodology-for-rating-sovereign-governments.

The sources of data and information used for this rating include static gross loss analysis by quarterly vintage from 2008; static recovery analysis by quarterly vintage from 2008; and dynamic prepayment analysis by quarterly vintage from 2008. All information used for this rating was sourced from IBL directly or indirectly through the transaction co-arranger, UniCredit Bank AG, London branch.

DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.

DBRS Morningstar was supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.

This rating concerns a newly issued financial instrument. This is the first DBRS Morningstar rating on this financial instrument.

Information regarding DBRS Morningstar ratings, including definitions, policies and methodologies, is available on www.dbrs.com.

To assess the impact of changing the transaction parameters on the rating, DBRS Morningstar considered the following stress scenarios, as compared to the parameters used to determine the rating (the Base Case):

Probability of Default Rates (PD): 32.5% for an AA (low) (sf) scenario, a 25% and 50% increase on PD.
Recovery Rates Used: 38.6% for an AA (low) (sf) scenario.
Loss Given Defaults (LGD): 61.4% for an AA (low) (sf) scenario, a 25% and 50% increase in LGD.

DBRS Morningstar concludes that for the Class A Notes:
-- A hypothetical increase of the base case PD or LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the base case PD or LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the base case PD and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (high) (sf).
-- A hypothetical increase of the base case PD by 25% and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).
-- A hypothetical increase of the base case PD by 50% and LGD by 25%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).
-- A hypothetical increase of the base case PD and LGD by 50%, ceteris paribus, would lead to a downgrade of the Class A Notes to A (sf).

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings GmbH are subject to EU and US regulations only.

Lead Analyst: Anna Dingillo, Financial Analyst
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 9 October 2019

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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Rating European Consumer and Commercial Asset-Backed Securitisations
-- Legal Criteria for European Structured Finance Transactions
-- Operational Risk Assessment for European Structured Finance Servicers
-- Operational Risk Assessment for European Structured Finance Originators

A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.